People usually use "DC" and "AC" refer to the power supply input type accepted (and typical dynamic headphones aren't powered by an external source). This is different than the audio signal. The audio signal definitely changes over time, so it's AC in that sense.
Both L and R headphone inputs can be thought of as some changing values--say between -1 and +1 volts--relative to the ground at 0. The ground can be shared because it's the reference for both channels. So the L channel information is just the difference between what's in the L wire and the ground wire. The L headphone driver is connected between the L wire and ground wire, so it transforms that electrical voltage difference into mechanical vibrations corresponding to that channel's signal. Likewise, the R channel information is the difference between the R wire and the ground wire, etc. The voltage on the L wire being negative or positive has nothing to do with whatever is on the R wire (ignoring small crosstalk), so the two signals are kept distinct despite both sharing the same ground.
edit: and the current goes from the source L output down the L wire through the L headphone driver to the ground wire and back to the source, and also from the source R output down the R wire through the R headphone driver to the ground wire and back to the source. Maybe there's an intuitive notion that something would go down the L wire to ground and back up the R wire and thus screw up the channel separation, but it's current we're talking about. What's of interest is the net movement of current.
I hope this explanation wasn't too rudimentary or on the flip side, unnecessarily verbose.
Btw...Yoga Fire!
Edited by mikeaj - 7/18/10 at 10:55pm